Mortgage approvals lowest since March 2009

Published 02nd Feb 2011

Mortgage approvals for house purchases fell more than expected in December to their lowest since March 2009, in a sign the housing market is set to continue to weaken, official data showed on Tuesday.

The Bank of England said mortgage approvals totalled 42,563 in December, down from 47,287 in November and the lowest since March 2009 when Britain was stuck in recession. Analysts had forecast a reading of 47,000.

Analysts said the drop in December may have been exacerbated by harsh weather in December, and that there could be a rebound in January. Nonetheless, mortgage approvals are now running at less than half their long-run average, suggesting that further house price falls may be to come.

"The level of depressed demand reflected by low mortgage approvals implies that house prices will continue declining well into 2011," said Nida Ali, economist at Ernst & Young.

Tuesday's data came after mortgage lender Nationwide said house prices in January fell at their fastest annual rate since August 2009, by 1.1 percent, and is likely to reinforce speculation that the BoE will hold off raising interest rates for some time to come.

Confidence in the housing market is being hurt by a still fragile economic recovery, reflected in an unexpected decline in gross domestic product in the fourth quarter of last year, and by the prospect of heavy public spending cuts as the government seeks to slash a record budget deficit.

Net mortgage lending unexpectedly fell by 298 million pounds in December -- its lowest since July 2010 and well below a previous six-month average of a rise of 600 million pounds. Analysts had forecast a rise of 650 million pounds.

Consumer credit rose by 181 million pounds, confounding forecasts for no rise on the month.

However, other data published at the same time suggested that credit conditions remain tight in the wider economy, despite the BoE's programme to pump 200 billion pounds of cash into the system.

The BoE's preferred gauge of money supply, M4 excluding intermediate other financial corporations eased to 0.3 percent on the month after a 0.4 percent rise in November.

The headline rate of M4 broad money supply growth, meanwhile, fell by 1.3 percent on the month -- its lowest on record and more than double the 0.6 percent decline recorded in November.

The annual rate of M4 broad money supply contracted by 1.5 percent after a decline of 1.2 percent in November, also a series low.

Source: ' ThisIsMoney '

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